SoKy Local Business or "SoKybiz"

Up until about an hour ago I had a huge question in my mind about the timing of this corrosion discovery by BP in Alaska. My thoughts immediately migrated to the loss of 200,000 barrels a day, the financial laws of supply and demand and the recent filings on EDGAR that clearly document a significant increase in profits by major oil producers. I quickly assumed this was some kind of thinly veiled strategy to keep profits up by limiting supply.

As usual, I had my television tuned to Fox News and during the program called "Your World w/ Neil Cavuto" there was a brief yet very telling interview with a senior executive of BP USA. I'm assuming it was Bob Malone but I cannot confirm on either Foxnews.com nor BP.com.

As usual, Neil Cavuto was quick to get to the point and asked some very pointed questions. The BP representative was very good, well versed and answered Neil's questions as thoroughly as possible on the high paced program.

I'm no financial analyst, nor am I an oilman, but the gentleman from BP made sense. He explained clearly what kind of corrosion it was, what they do to prevent this kind of corrosion (which interestingly enough is caused by the excrement of oil eating "bugs"), and why their preventive measures (additives to the oil to kill the bugs) were ineffective on the lower sections of their pipeline. He explained in simple terms how the electronic inspections found and reported the pitting on the inside of the pipes resulting in an immediate shutdown of the pipeline.

Insert a long story here about how the Governor of Alaska has ordered a hiring freeze due to the loss of taxes and royalties as well as a suggestion that BP compensate the state for the loss.

Cavuto continued to push for answers asking some hard questions about the state of disrepair of the pipeline, how the pitting went un-noticed or that the corrosion was not predicted. Neil even asked whose fault it was for allowing it to get this bad in the first place. Neil went so far as to ask directly, "are you going to expect any resignations over this?" Malone was clear that he had gotten to know his troops in Alaska and had every confidence in their ability. He explained how this happened and why it was such a surprised. Even when Cavuto pressed about the Governors suggest repayment of decreased revenue, Malone was smooth in his response that it was the first he had heard of it.

Sometimes you just have to go with your gut and my gut tells me that I was wrong and this is not some sort of economic ploy to keep gas prices high as well as profitability. This is one of those bad things that happened at a really bad time.

Then I got to thinking, what if. What if the technician who received the readout from the electronic inspection didn't notice? Or worse what if their equipment didn't pick up the acidic bug poop pitting? What if, the bosses in Alaska tried to cover the problem up so as to not cause a shut down. At nearly $100 per barrel times 200,000 barrels a day, that's a lot of money that stopped flowing over the weekend. What if they tried to 'fix' it either through modifying the results or by patchwork? What if the higher ups refused to cut off that flow of cash and just take their chances? What if the pipes broke before anyone ever fessed up to or knew of the problem? Yes, there would be an ecological disaster unlike any other.

The pipes would have broke and that flow of oil would have continued until the safety features interrupted the supply of oil. All this after how many gallons of oil spilled onto the Alaskan soil? The questions asked by Cavuto, other press, as well as likely congressional hearings would have been similar, but the end result would have been worse than the loss of a few dollars to BP, Alaska or the few pennies more it cost the consumers for a gallon of gas. The result would have been millions and millions of dollars spent cleaning up the mess and likely the loss of allot more than 16 miles of pipeline, due to the public outcry that would have resulted in all kinds of inspections and who knows what else.

In the end, I have to think this was one of the hardest decisions the managers at BP had to make. To have the bad press of a weak pipeline and the embarrassment of the shut down as well as the lost revenue during repairs. Or to have the pipes break destroying the land which provides that golden flow of cash. No, I'm impressed with their decision to take the high road and take the heat now before something much worse happened.

BP has set up a website just for news and information about this situation. You can find it at http://usresponse.bp.com/

This was posted by SoKy : 5:07 PM